AI Demand Surges, Broadcom Q1 Chip Revenue Disappoints

Broadcom has reported subpar revenue performance in its semiconductor business, despite the acknowledged influence of artificial intelligence (AI) in driving market demand.

In the first quarter, Broadcom's semiconductor division recorded revenues of $73.9 billion, falling short of analysts' projected $77 billion. The company maintains its fiscal year 2024 sales forecast at $50 billion, consistent with previous estimates. Broadcom temporarily suspended quarterly forecasts during the integration and restructuring of the acquired software manufacturer, VMware.

Results suggest that the surge in AI computing expenditures may not result in the anticipated upswing in Broadcom chip sales. CEO Hock Tan had committed to this sector constituting a quarter of the company's revenue for the current fiscal year. Simultaneously, Broadcom's infrastructure software sales surpassed analysts' expectations.

The recent ascent of NVIDIA has prompted investors to seek companies poised for windfalls in AI-related opportunities. While Broadcom does not manufacture chips akin to NVIDIA's, used for training large language models supporting AI tools, it supplies crucial network components and handles custom chip design work. This positions it as an integral player in large data centers managing AI workloads.

Broadcom's stock has risen by 26% this year. However, the company's share price declined by 3% in after-hours trading following the announcement. Similarly, chip manufacturer Marvell Technology witnessed a post-announcement decline due to subdued forecasts, as it is also considered a beneficiary of AI spending.

In the first quarter, Broadcom achieved profits of $10.99 per share, excluding certain items, surpassing analysts' expectations of $10.42 per share for the period ending February 4. Total revenue increased by 34% to $119.6 billion, surpassing the average analyst expectation of $118 billion.

Software demand played a crucial role in offsetting semiconductor sales, with the infrastructure software segment reporting revenue of $45.7 billion, surpassing the anticipated $43.3 billion.

Broadcom's CEO Hock Tan has positioned the company as a major player in the chip industry through a series of strategic acquisitions. Diversification into the software domain, including the recent acquisition of VMware, has further advanced these efforts. Hock Tan mentioned that the integration of this transaction would take about a year, costing approximately $1 billion, including expenses associated with employee layoffs.

Broadcom is a key supplier for Apple's iPhone, designs custom chips for Google under Alphabet, and holds a significant position as a supplier of network components guiding traffic between data center computers.